Tuesday, July 31, 2007

Pune's development plan (DP) for the coming decade will have a futuristic approach with provisions for promoting eco-housing and extra floor space index (FSI) corridors, said Pune Municipal Corporation (PMC) city engineer Prashant Waghmare. He was speaking at a seminar on 'Climate Change: Mitigation and Adaptation in respect of Development Plan and Development Control Rules', organised by the Association for Leadership, Education, Research and Training (ALERT) here.

Referring to the civic body's move to allow skyscrapers with a maximum height of 100 metres in the city in a month's time, Waghmare said: "The higher they go, more the space for implementing eco-housing concepts."

He said that it was time to get over the phobia against granting more FSI. "Many countries had successfully implemented this concept of allowing high rises thus creating space for eco-housing and this will go in our DP," Waghmare also said.PMC to promote eco-housing - Yahoo! India News

Monday, July 30, 2007

In October 1971, Maharashtra assembly and council had adopted resolutions favouring the imposition of a ceiling on urban immovable property and the acquisition of such property in excess of the ceiling.

Parliament passed the ULCRA in 1976.

But the Centre passed a law in 1999 repealing the ULCRA.

This led to states such as Haryana and Punjab seeking the act’s repeal.

ULCRA is currently in force in only two Indian states.

While the state government is confident of repealing the Urban Land (Ceiling and Regulation) Act, 1976, with a two-third majority in the legislative assembly on July 31, officials in the deputy and additional collectors’ offices of the state’s eight cities that come under the Act, have a different story to tell.

Pressure to open old ULCR files

Sources told DNA that at a high-level meeting on July 26, officials of the urban development department asked top officers in the deputy and additional collectors’ offices to open ULCR files, check all exemptions given and create cases for appeals. “We were instructed to check old files, declare land as surplus and slap hefty fines. Though many orders are faulty, we have to obey our bosses,” said an officer. DNA - Mumbai - Pressure to open old ULCR files - Daily News & Analysis

21 Jan 2006: Commitment is enough to get funds!

"Even now the stategovernment is not keen to undertake these reforms, but it will have no option ifit wants Central aid," a senior bureaucrat said. The PM's strong pro-reformslant is unlikely to leave Deshmukh with much elbow room to wriggle out of acommitment.

However, the statecould give an undertaking to repeal the act over a long-term period and still beeligible for funding under NURM, an official said.

The eligibility for NURM wouldnot be dependent on the date when the reforms are actually initiated or put inplace. This means that the state government can commit to repeal ULCRA afterfour years and yet receive funds from Centrenow.

The CM told mediapersonsin Pune on Thursday that "it will take some time to repeal the ULCRA. Allpolitical parties will have to be taken into confidence."

Now, almost three decades after the state first granted permission to develop the land, additional collector S R Jondhale has called for an explanation for the large-scale violations under ULCRA. The state government can still salvage 40 lakh sq ft which are left to be developed at Lokhandwala. Property prices in the area are about Rs 7,000 a sq ft.

Then came the news that Chief Minister of Maharashtra is going to put the resolution in current assembly session to scrap this act. Now don’t think that its b’coz that he cares for the people or something, but that’s the directive/condition by Central Govt. to release some kinda aid for the state. But whatever may be the reason, it might had provided some respite to the so-called aam aadmi.

But then came the news that some political party had urged the CM on the behest of, u know who, to postpone the scrapping. Also they told him that lets talk about this in next session of assembly and not now. The reason was, many builders and developers (not poor us, but the other kindred) has invested lot of money in land and the real estate. If this law is scrapped now, then they will suffer heavy losses. This was really astonishing to mere mortal like me and I was just loss of words to explain my anger about such a move. Also this makes it very clear that where the loyalties of those, whoever is talking about public welfare, actually lie.

Next in agenda would be restructuring the legislative issues, such as Urban land ceiling regulation act, Land acquisition act, Rent control act, conversion of rural land to urban use etc which need to be restructured in a way to take into account growth and development of infrastructure.

Chief Minister Vilasrao Deshmukh’s motion to scrap the central legislation provoked intense criticism from the Opposition. He responded by saying that the government did not wish to hurry the motion and that it will be debated in the legislature’s next session.

Ramdas Kadam (Shiv Sena), the opposition leader, deprecated the government’s haste in dealing with the matter. But he agreed with the government’s stand, albeit with a proviso that a detailed debate be engaged in before the motion was adopted.

Eknath Khadse (BJP) to remark that it appeared as though the treasury benches and the Sena had fixed the match.

(Ramdas)Kadam (Shiv Sena) hastily clarified that the Sena too was opposed to the manner in which the motion was being moved.

(Chief Minister Vilasrao) Deshmukh said the government had moved the resolution because it was mandated by the terms of the Jawaharlal Nehru National Urban Renewal Mission.Maharashtra had given an undertaking under the JNNURM to repeal the ULCRA, Deshmukh said, to ensure that the Centre did not suspend funds under the mission.

Ganpatrao Deshmukh (Peasants and Workers Party) said the government had tried to move the resolution without giving the mandatory seven days’ notice.

BJP’s (Eknath)Khadse only argued that the government was trying to postpone the debate on the resolution without allowing the opposition to debate the motion.

Anybody wishing to book a flat with a builder / promoter in India is expected to keep in mind following few basic points before deciding to book a flat on ownership basis.

- About the builder / promoter- About the title deeds- Inspection of Plans/Drawings- Area, number of flat etc.- Amenities/specifications- Nature, extent and description of common areas and facilities etc.- Possession- Mode of payment- Permissions under Urban Land Ceiling and Regulation Act 1976* The builder should have obtained permission of the competent authority under Urban Land Ceiling and Regulation Act 1976 for developing the land/plot on which proposed building is to be constructed * The sale agreement should be in accordance with the conditions laid down by the Urban Land (Ceiling & Regulation) Authorities

The Maharashtra government might repeal the Urban Land (Ceiling and Regulation) Act, 1976. By doing so, at least 50 hectares of land will be available in Mumbai. This sudden increase in the supply of land is expected to push down property prices in Mumbai by 30 to 40%. Left parties in the state are organizing a campaign to oppose the repeal of this act.

I am a bit confused by this, why are the left parties opposing something that would bring down real estate prices? Lower real estate prices mean that the Aam Aadmi’s dream of owning a house has become easier. The cynical explanation would be that senior members of the left parties have substantial investments in the real estate sector.

One could also argue that this opposition is based more on ideology, a matter of principle as some would say. Here is my advice for the left comrades who oppose such laws, “more Deng Xioping and less Mao”

# (b) *Repeal of Urban Land Ceiling Regulation Act (ULCRA).# (c) *Reform of Rent Control Laws balancing the interests of landlords and tenants.# (d) Rationalisation of Stamp Duty to bring it down to no more than 5 per cent within next seven years.

"So now we know what exactly it takes for our politicians to make common cause, sinking their differences, prejudices, competitive instinct, everything. No, it is not cricket (who’d say that after the Bengali revolt over Sourav Ganguly, anyway?) or war. It is real estate."

"Have you sometimes wondered why reform in some areas of our infrastructure proceeds much faster than in others? You will see a clear pattern there. Anything that does not involve real estate, moves much faster. Telecom is a good example. Anything that involves land takes much longer."

"Now you know why our politicians will not reform our property laws, modernise the land records, cut stamp duties and do other simple things to bring the real estate business out of the grip of the black economy. Now you know why even a pro-reform Congress-NCP government in Maharashtra would not abolish the urban land ceiling law, which most other major states have done. It won’t, because politicians are desperate to hang on to the few discretionary powers that remain. They have exploited these powers to build massive personal fortunes — in cash and, of course, in properties."

A special township policy proposed by the state government offers investors a slew of tax exemptions and incentives, all in the name of creating affordable housing stock. The framework, which is part of the overall housing roadmap, cuts through most of the regulatory controls that govern the realty sector to develop special urban townships on the periphery of major cities in the state. While the stated objective is to increase the stock of affordable houses, the fine print tells you a different story.

If cleared, the policy promises two major incentives, besides a host of other benefits and concessions for township projects. It throws open prime agricultural land for a developer to purchase without being a farmer himself. At present, land revenue code does not allow a non-farmer to purchase farm land.

Also, the land leased out for a special township project would automatically get notified as non-agricultural land. Equally sweeping is the incentive that there would be no upper ceiling on agriculture land that a developer or owner could purchase for a given township project. The project would also be exempt from the provisions of the Urban Land Ceiling and Regulation Act, which means that an individual (developer) could own more than 500 square metres of land.

Stamp duty would be halved, and the project would be “partially” exempted from payment of scrutiny fee for processing the proposal and another handsome 50% concession in payment of development charge. On the construction side, the developer would get a floating floor space index (FSI), which means an unused FSI for one plot could be used elsewhere on the township area.

10. "Never judge the policy by its intent but always assess it by its consequences. Nothing could illustrate more vividly than the Urban Land Ceiling Regulation Act of 1976. ..."

According to Mr. Ramesh, this statute is the most conspicuous example of a statute which was declared to be a statue with good intentions but produced nothing; a mountain of good intentions produced a mouse by way of labour. He says:

"The objectives of the Act, as it is usually referred to, were laudable. It was to prevent concentration of urban land and to promote housing for the poor in cities but in actual practice, the Act has reduced the supply of land, inflated land prices, served as a dampener on housing and construction activities and impeded the timely closure of sick companies in places like Mumbai, Calcutta, Ahmedabad and Kanpur in a manner that would protect the interests of labour and generate new economic activity. Clearly the Act is bad law and worst economics."

Friday, July 27, 2007

The couple, whose career tennis winnings alone exceeded $50million, not counting lucrative endorsements, bought a house ata new ski resort called Tamarack in Long Valley. For decades, it wasa secluded playground for the gentry in Boise, 100 miles (161kilometers) downriver. Idahoans came to fish and boat on BigPayette Lake, below mountain ridges that hold snow long into summer.

Now, Agassi and Graf plan to build a Fairmont hotel there. Ifall goes as planned, it'll be the first Fairmont in the worldwith a rock-climbing wall and a machine that simulates kayaking.There will be a bowling alley, too.

The place will be a condominium hotel, meaning that peoplewill buy the rooms, use them when they want and let the hotelrent them when they're not. Selling the 224 rooms and 69penthouses -- plus 50 private homes on the mountain -- will bringin $600 million for Agassi Graf Development LLC and its partner,Bayview Financial LP in Coral Gables, Florida.

Paranjpe Schemes is one of the largest developers in Pune and has pioneered housing for senior citizens. The proposed project is the first hotel venture of the company.

The new hotel will be a part of the Taj Business Hotels portfolio. The Gateway Hotel will be a 150-room mid-market hotel with a multi-cuisine restaurant, a bar, banquet, meeting facilities and a health club.

Real estate private equity fund, Indiareit, has announced an investment of Rs250 crore into the $1 billion integrated realty project.

The 138-acre project will have IT/ITeS SEZ, residential apartments and villas, a retail mall and a star hotel.

“We have received the land clearance from the State government and also the initial approval from the Centre. We hope to start the project in the next two months,” Paranjpe Schemes Ltd managing director Shashank Paranjpe said.

He said that the project should have a market value of Rs3,200 crore and will generate employment for 30,000 knowledge workers.

Chinese architect ECADI has been commissioned to design the project, which is estimated to be complete in six years.

Paranjape Schemes, which has completed over 100 projects since its inception, also has an office in Singapore.

HDFC India Real Estate has a corpus of Rs 1,000 crore. The fund has bought stake in another Pune based real estate developer Vascon Engineers.

The fund has a mandate to invest in three broad classes of projects-those that are complete, those in the development stage and those in the planning stage. These could be in the residential as well as commercial sector. The fund is managed by HDFC Venture Capital, in which SBI has a 19.5% shareholding apart from HDFC

The capital will be used for development of upcoming projects of the company. The investments made by GE Capital are believed to be specifically for project in Pune, as told by Shrikant Paranjape.

GE Capital, one of the largest private equity investors in the world, has bought equity in a specific project of the company and will not hold equity in the holding company-Paranjape Schemes. The model may be that of a Special Purpose Vehicle with GE Capital holding a significant stake.

Athashri is an innovative concept in housing developed by Paranjape Schemes. It focuses on special needs of senior citizens and develops a total housing solution aimed at giving the senior citizens a life of comfort, convenience, care and camaraderie. Various factors like increasing life expectancy and affluence, migration of young generation to the US in search of greener pastures have resulted in increasing number of senior citizens that need to be cared for and provided with a decent quality of life. Athashri therefore is an idea whose time has come, a fact well supported by tremendous response to Athashri housing projects, making Athashri, Hadapsar the fourth project in the Athashri series in Pune. Plans are also underway to extend this scheme for ethnic Indians abroad.

Mr. Shashank Paranjape, MD, Paranjape Schemes, outlined the ambitious expansion plans of the company which include two mega townships in Pune, both with Athashri housing for senior citizens. Concept of Athashri is already on the way to becoming national with a project at Bangalore under development and 5 new projects planned at Ahmedabad, Kolkata, Hyderabad, Mumbai and Delhi, the first 2 being launched during the current year.

Paranjape Schemes’ commitment to senior citizens has resulted in the establishment of Athashri foundation that takes a holistic view of the life of senior citizens. Athashri foundation is in the process of setting up Continuing Care Units for senior citizens who don’t need to be hospitalized and yet require continuous attendance and support. These units will be manned by trained staff and will be equipped with high tech gadgets and equipments that make the life of senior citizens comfortable and convenient.

Other than the Athashri projects, Paranjape Schemes is planning a number of ambitious projects involving IT parks, SEZs, Malls and Multiplexes, and world-class housing. “We take investment by HDFC as an endorsement of our track record and it will go a long way in supporting our growth plans” said Mr. Shrikant Paranjape, Chairman, Paranjape Schemes. With support from HDFC, Paranjape Schemes a household name in Pune and Maharashtra is said to scale greater heights on the national and international level.

Mr Parekh, chairman of HDFC, said that they would be more flexible and liberal in lending to residents of Athashri since the developer remains involved in the project. He added that as the developers take the housing for senior citizens project nationally, which they will do over a two-three year period, HDFC will go along with them.

Reverse mortgages are widely used in the US by the elderly when they have no income, but own an asset like a home. By mortgaging that asset, they are able to generate an income through it for lifetime and whatever loans are accumulated are recovered through its sale when they expire. “We will start with the 300 households in this project where it is easier for us since the developer will remain in control and it is all under one roof.

Did Enam’s absence from DLF IPO, the largest in Indian history, lead to the lackluster performance of the offering? The market believes so.

And there’s more. Enam’s stoic silence in the DLF IPO coinciding with an IPO of one of its own companies was almost a ‘Do-Not-Subscribe’ sign for a large number of stags in the domestic market with whom Enam shares an excellent relationship. :Partha Sinha,TNN

Four years after delisting its shares from the Delhi Stock Exchange, real estate behemoth DLF is knocking at the capital market again selling shares at - hold your breath - 837 times the valuation at (The full version of this story is available to Premium Service subscribers of "Business Standard" only. Worth subscribing.) :N Mahalakshmi

"Basically if you look from a foreign investors' view-point, they want to get into industries which are India-centric; therefore, with the kind of appetite seen in retail, telecom or for that matter infrastructure and real estate, is no different, because if you buy into real estate stocks, or real estate in India, you are basically betting or getting an exposure to the economic growth rates in India. So if you have a good quality and a good proposal and if a good value proposition as DLF is at present, then there will be very good appetite from overseas investors."

"Also, if you notice the kind of private placements in the form of maybe listing in overseas market, or FCCB issues, or the QIP ones, which some of the other real estate companies have done in the recent past, all these issues have got very good response and there is no reason why DLF too should not get a good response, considering that the quality factors in DLF are certainly the highest."

The success of the DLF IPO, which was oversubscribed nearly 3.5 times, should give confidence to merchant bankers and companies that want to raise money in the capital market. DLF has raised Rs 9,000 crore, despite the fact that the issue was considered expensive even optimistic analysts had recommended subscribing at the lower end of the price band.

The story in the much smaller Vishal Retail IPO is even better. With a hot-button business like retail, the issue attracted over-subscription to the extent of 69 times. At the upper end of the price band, the company will collect Rs 129 crore.

Concerns: DLF owns only 0.5% of the land reserves

Though DLF and its subsidiaries own 1,160 acres, or 11.3%, of the 10,255 acres that comprise the land reserves as of April 30, 2007, DLF directly owns only 0.5% of these land reserves. The balance 10.8% is held by the subsidiaries of DLF. Of the 1,160 acres that DLF own, 38 acres have been leased to DLF by governmental authorities on a long-term basis and DLF has freehold title to the balance.

The remaining land reserves are subject to agreements to purchase, development rights agreements or memoranda of understanding for acquisition.

Second, the real estate market, as we know, is largely "black" - at least in Delhi where DLF is king. Now this "black" money routinely flows out of India through the hawala route, and comes back through FIIs as "participatory notes" - something SEBI and the finance ministry know but cannot curb without allowing a huge crash to happen. The black money of Indian bigwigs has perhaps flowed back into the DLF issue, and some of it could even be the black money in the real estate market.

Why am I not interested in this(DLF) share?

Their "other income" is 1400 cr. which is about 70% of their net profit (1941 cr). I don't like that. Turns out it has come from "disposal of fixed assets and long term investments" - this is a one time thing.

If you remove the one-time other income, the earnings are about 500 cr. which means the company is getting a P/E of 190. I'm not happy to pay such ridiculous valuations in the age of high interest rates, low borrowing capabilities and oversupply.

Land valuations are something I do not understand. How they can value land they do not own is beyond me.

April 04,2007: Doing a U-turn on the DLF IPO case, market regulator SEBI has submitted before the Delhi High Court that it can probe complaints against companies that intend to get listed.

"There is no direct bar (on investigation) in the case of non-listed companies," the SEBI counsel informed the bench headed by Justice Tirath Singh Thakur in response to a query whether there was any direct bar against such probe in the SEBI Act.

Securities and Exchange Board of India, earlier in its affidavit, had said that it cannot investigate complaints made against the real estate major as it was an unlisted company.

It had then said that the Ministry of Company Affairs was the right authority to deal with grievances in case of non- listed companies.

SEBI's U-turn came yesterday during hearing on a PIL by Society for Consumers' Investors and Protection (SCIP), which had sought a probe into DLF's conversion of debentures into equity shares.

The counsel for petitioner B R Schadeva cited the provisions under SEBI Act and Companies Act, which said that SEBI can investigate complaints against those companies which intend to get listed. In this case, DLF had filed red herring prospectus with SEBI, which clearly showed that the company wanted to get listed on the exchange.

December 5,2006: The DLF group’s much-touted IPO will finally see the light of day. The group, which has already resolved the issue with its minority shareholders, is now in the process of filing the draft red herring prospectus (DRHP) with Sebi. Sources in the company told ET, “The DRHP will be filed by December 15 and the issue should hit the market in February.”

The company recently resolved the issue with the shareholders and in it’s extra-ordinary general meeting, the board approved the revival and issue of 81,983 shares, 2% unsecured redeemable debentures of Rs 100 each, which are optionally, fully or partly convertible at par or at premium to the shareholders in accordance with their entitlement.

November 15,2006: DLF Universal, the Delhi-based real estate giant, has resolved the conflict with its minority shareholders, and is now gearing up for its mega IPO. Each minority shareholder will get 440 shares for every single share held. This means minority shareholders have hit pay dirt with the deal. There are many who have become multi-millionaires overnight with this deal.Accoding to a settlement reached at an Extraordinary General Body Meeting on Tuesday, the minority shareholders will be issued 81,983 shares or 2 per cent of unsecured redeemable debentures of Rs 100 each. This would be converted into equity shares in the ratio of 10 equity shares of Rs 10 each.

It would be further split into 5 shares of Rs 2 each. The shareholders also approved a bonus share issue of seven equity shares of Rs 2 each for every share of Rs 2 held after the conversion of the debentures into equity shares and subsequent splitting of shares.

Ultimately, each minority shareholder will now get 440 shares for every single share held. As the terms and conditions remain the same as the previous debenture issue, the minority shareholders will not lose out on the IPO gains.

DLF IPO was derailed as minority shareholders approached the Company Law Board and SEBI alleging that the DLF management took them for a ride when the company held a rights issue in September 2005. Some of the investors were denied participation in the Rs 35 crore rights issue which increased promoters' stake to 99.5 per cent.

With the settlement, DLF IPO is expected anytime soon. The company will first refile its Draft Red Herring Prospectus with SEBI.

This is a lesson for companies who don't value interests of minority shareholders

October 20,2006: Real estate giant DLF Universal has finally settled the issue with its minority investors, a dispute which derailed its much-hyped IPO plans. DLF has convened an extraordinary general meeting on November 14 to approve allotment of the unsubscribed portion of its last year’s rights-cum-debenture issue to minority shareholders. This will make 950-odd minority shareholders millionaires overnight (not that they aren't already).

DLF’s IPO will now sail through without hindrances. It was delayed after minority shareholders complained to the Securities and Exchange Board of India (Sebi), the ministry of company affairs and the Delhi High Court, that DLF management sidestepped them when a rights issue was completed last year.

Now the deal is that a common shareholder with 50 DLF shares will get 20,000 shares of Rs 2 each. Going by the proposed IPO price of a minimum of Rs 600 a share, the shares’ value will be Rs 1.20 crore.

September 30,2006: In a major step down from its stated position, India's largest real estate company, DLF Universal, has apologised to its minority shareholders and assured them that steps would be taken to settle the dispute over the rights debentures issue within one month.

In a meeting with minority shareholders today, vice chairman of DLF, Rajiv Singh apologised for not redressing the grievances of minority shareholders earlier and assured them that an advisory committee would be set up to look into the modalities of how the issue could be resolved. Singh reportedly said that the company would ensure that the settlement is in favour of shareholders.

"The company has admitted that it made a mistake and has assured us that our rights would be taken care of. It also said that Sebi and Ministry of Company Affairs (MCA) had enquired about the issue and DLF wants to settle it before venturing into the capital market again," said MS Tanwar who is a minority shareholder with the company.

The company on its part has said that "it will settle a few issues" and then come up with a statement in the next couple of days. It is learnt that today's meeting lasted for less than an hour and was attended by 35-40 minority shareholders.

The meeting was the first overture from the company addressing the claims of its minority shareholders after its IPO was called off last month. While the promoters of the company own 99.5 per cent stake in the entity, there are 1,308 minority share holders who have the residual stake. The controversy had erupted when the company had made a rights issue of partially converted debentures in a 1:1 ratio in December last year. Almost 90 per cent of minority shareholders had cried foul alleging that no intimation about the issue was made to them. The shareholders had written to Sebi alleging breach of trust and the matter is pending before MCA.

However, despite Singh's apology and promises, small shareholders are still suspicious of the company’s motives. "The company did not come with any concrete plan as to how it plans to settle the debenture issue. Instead they made a lot of promises and it all seems to be delaying tactics," said Kamal Bhatia, a shareholder in the company.

When contacted, the company spokesperson confirmed the meeting and said that a statement to the effect will be made during the next two days. The resolution of this issue is important for the company, if it is to revive its IPO.

August 31,2006: DLF gROUP has postponed its much-awaited IPO again. This time the Delhi real estate giant has even withdrawn the draft prospectus from the regulator SEBI. It will resubmit the document again in another month and half. This means DLF is in real soup and the IPO managers or company management did not foresee the shareholder revolt.

"The withdrawal is just for the revision of DHRP. It will be updated with the latest information and an audited report. It is very important to put up the latest information in the interest of the investors," said Saurabh Chawla, Director Finance, DLF.

Background:The company was originally set up as Omaxe Builders Private limited in 1989, promoted by Shri. Rohtas Goel , the founder, to undertake construction & contracting business. The company further changed its constitution to a limited company known as Omaxe Construction Ltd., in 1999. The name of the company has now changed to OMAXE LTD from 2006. The company began life as a civil construction and contracting company, has Successfully executed more than 120 prestigious Industrial, Institutional, Commercial, Residential and Hospital construction projects.

Omaxe: Likely to prove rewarding

Omaxe, a real estate player, is open for subscription with a public issue of 1.78 crore equity shares of Rs 10 each with an additional green shoe option of upto 17.50 lakh equity shares in the band of Rs 265 to Rs 310 per share on July 17. The issue will close for subscription on July 20, 2007.

As per calculations, the NPV works out to Rs 342 per share on a conservative basis. At the price band of Rs 265-310, the stock is at a discount of 22.5-9.4% to the NPV. In comparison, Unitech and DLF currently trade at a premium of 0.9% and 47.9% to NPV as per calculations. The DLF IPO price itself was at a premium of 21-33% to its estimated NPV. HDIL, which came out with an IPO early this month at a price band of Rs 430-500 per share is at a (discount)/premium of (12.1%) � 2.2% to its NPV.

Taking into account the price band of Rs 265-310, Omaxe is available at a FY07 P/E band of 18-21, as against a FY07 P/E of 53.6 for DLF, 35.1 for Unitech, 42.4 for Sobha and 23.9 for Parsvnath.

An investment can be considered in the Initial Public Offer (IPO) of Omaxe, a real-estate company with its current revenues comparable to players such as Sobha Developers and Parsvnath Developers.

Competition apart, the company’s ability to bring professionalism in terms of disclosure and transparency could be a vital indicator of the company’s performance.

At the offer price of Rs 265-310, the price-earnings multiple is 18-20 times the company’s consolidated earnings for 2006-07 on the expanded equity base. The offer is at a discount to peers of a similar size.

Further, based on the company’s planned projects and current projects under development, the PE (at the offer price) stands at 10-12 times its likely consolidated earnings two years from now.

Land Bank

Omaxe has declared land reserves of 3,255 acres, representing 150 million sq ft of developable area, mainly in North India, but spread across nine states

More so, the company is concentrated more in the National Central Region (NCR), in which it derives almost 73% revenues, and the towering presence of real estate majors like DLF and Ansal properties and Infrastructure, that operate in the same line of business and has a wider acceptance, pose a stiff competition to the company.

Also, one must take into account the rapid spurt in the PAT of the company. In the last one year, it has grown by 75% and considering last four years it has grown at a CAGR of more than 100%.Valuation

On the valuation front, considering the post-issue equity capital on a fully diluted basis including the green-shoe option, the company quotes a P/E of 19.80(x) and 23.17(x) at the lower and higher end of the price band respectively.

An immediate comparison with its peers like Ansal Housing, Parsvanath Developers and Sobha Developers, which quote a P/E of around 10(x), 26(x) and 43(x) respectively, the scrip’s price looks fair.

Brokerages echo in unison to subscribe to Omaxe Ltd's initial public offering, which opened for subscription Tuesday and close Friday.

Brokerage house SSKI's fair value estimate of Omaxe's NAV comes to Rs 448 per share, which gives a 44 per cent upside from the upper band of the price range of Rs 265-310 per share.

Edelweiss has also recommended subscribing to Omaxe IPO. On net present value basis, Edelweiss has estimated Omaxe's net asset value at Rs 400-405 per share. The IPO price band of Rs 265-310 is at a discount of 51-31 per cent to its NAV.

At the offer price band of Rs 265-310, Emkay Share and Stock Brokers has worked out Omaxe's PE to 17.8-20.8 times 2006-07 (Apr-Mar) EPS of Rs 14.9 (consolidated) on post issue equity of Rs 172.75 crore. According to the brokerage, the company's net asset value stands at Rs 487 per share, which is 57 per cent above the upper band of the price range of Rs 265- Rs 310.

Blogs:

On the flip side, Omaxe clearly runs geographical concentration risks with its presence largely restricted to the capital and neighbouring states. Notably, these are the very regions where the big boys from the segment, namely DLF and Unitech dominate.

Furthermore, being relatively recent entrants into the land accumulation game, Omaxe’s acquisition costs are bound to be significantly higher, which in turn will yield lesser margins. Finally, the recent run in with the IT authorities and its other cases, raise the spectre of corporate governance related issues.

Surprisingly, the Omaxe issue is priced at a discount to its net asset value and a reasonable earnings multiple.

In September 2006, real estate consultancy Trammel Crow Meghraj had carried out a valuation of all the 47 projects of Omaxe aggregating about 140 million sq ft (2,837 acres), and had arrived at a net asset value (NAV) of Rs 19,700 crore. Post-issue, the company will have market capitalisation in the range of Rs 4,214- Rs 5859 crore, which amounts to a meagre 22-30 per cent of the estimated NAV.

“This valuation has not been mentioned in the red herring prospectus following SEBI guidelines which bar real estate players from providing valuations,” said Rohtas Goel, chairman.

From the Archive

Real-estate developer Omaxe Ltd plans to raise as much as Rs 600 crore ($148 million) selling shares for the first time to finance land acquisition and repay loans.

The company will sell 17.8 million new shares of Rs 10 face value at Rs 265 to Rs 310 apiece, starting July 17. The price will be decided based on demand from investors after the sale ends on July 20, the New Delhi-based company said in a statement on Thursday

The global funds are gung-ho about the prospects of India's real estate sector and have committed billions of dollars, but the Indian mutual funds are treading cautiously. The fund managers are concerned about overstretched and unjustified valuations of real-estate stocks and are quietly reducing their exposure to them.

Close on the heels of the mega public issue of Delhi-based realtor DLF Ltd, Housing Development and Infrastructure Ltd (HDIL), a group company of the Mumbai-based mortgage firm Dewan Housing Finance Ltd, plans to enter the capital market with a public issue of around Rs2,000 crore early July.Another Delhi-based realtor, Omaxe Developers Ltd, is also expected to hit the market around the same time

Indian companies love London’s Alternative Investment Market for the ease with which they can list and raise money. Last year, 11 Indian real estate companies raised $2.7 billion, with the largest offerings coming from property giants Hirco (Hiranandani) and Unitech. But global investors, unhappy with results from some Indian stocks.

In an attempt to cash in on the real estate boom in the state and pass on the benefits to the underprivileged, the labour commissioner of the state, S Chakrabarti, announced that the labour department of the government was to sign a memorandum of understanding (MoU) with the United Bank of India on Monday afternoon to open up zero-balance accounts for around 25,000 construction workers registered with the West Bengal Building and Other Construction Workers Welfare Board constituted under the labour department vide The Building and Other Construction Workers’ (Regulation of Employment and Conditions of Service) Act, 1996Welfare scheme: Zero-balance accounts for labourers

The real estate unit of financial services group ING Group (ING.AS: Quote, Profile, Research), which managed 94.4 billion euros ($130.2 billion) in property globally as of March 31, plans to invest 0.5 to 1 billion euros in these two countries by early 2008,

Developers are seeking creative solutions for coping with falling property yields and rising interest rates. A solution being taken by many developers is to enter riskier markets, such as India and Russia, which have become the hot-ticket items of the day.At a conference on “Building Trends in the Real Estate Market,” held by Maalot The Israel Rating Company Ltd. and the Chaim Katzman Gazit-Globe Real Estate Institute at Tel Aviv University, Eliezer Fishman said, “In India, land is expensive, but construction is cheap.”Fishman Holdings is active in India through subsidiaries Mondon Investments Ltd. “India has a shortage of 23 million housing units,” Fishman said that for historical reason relating to land ownership in India, the critical factor for a project was the purchase of land. “The price per sq.m. is almost the same between different regions, but the yields are another matter altogether. It’s therefore critical to choose the area where you’ll get the highest yield. Once you’ve bought the land, there’s no problem in obtaining financing for a project,” he said. Globes [online] - Fishman sees opportunity in Russia and India properties

Dubai-based realty major Emaar is setting up a 100 per cent subsidiary in India, though it has an equal joint venture with Delhi-based MGF, a real estate developer and financier.The subsidiary will operate independently. It is not necessary for us to go with the current joint venture.Under government rules, an overseas company has to get a no-objection certificate from its Indian partner before entering the same business in India through a wholly-owned subsidiary. An Emaar spokesperson said it was not necessary for Emaar to obtain a no-objection certificate from MGF to bring Hamptons to IndiaEmaar plans 100% India subsidiary

Its sheer size and growth prospects make India's property market attractive to many foreign developers, including those from Malaysia, who want a share of the growing pie. According to SunCity managing director (property development) Ngian Siew Siong, the company plans to focus on tier-two cities where prices have not gone through the roof, and new entrants would be able to make good profit margins. Ngian said the company hoped to find the right joint venture partners for its Bangalore and Pune ventures within the next one year.SunCity enters India

Saturday, July 14, 2007

A."REIT rhymes with ‘sweet’":

The right pronunciation of 'REIT' in English rhymes with "sweet" says Mr.D. Murali in The Hindu. I pronounced 'REIT' several times but it never sound 'sweet'! "Every morning I am going to do loud reading of The Hindu to improve my diction" I announced. But, my wife found out the other article by the same author. There she found out, 'REIT' is pronounced as 'REET'! So sweet of her.

What is REIT?

In its simplest form, REIT is a way of securitising property; it breaks down the ownership of one or more buildings into units that are sold to investors and usually listed on the stock market, writes Mr.Murali.

B. Benefits for Developer:

B1. You can have the cake and eat it too:

For the developer REIT is more profitable than keeping the ownership of the property and earning lease. 1. Developer constructs a property and gives it on lease. 2. Developer sets up REIT. But retains 30% stake. 3. Developer gets funds -- 70% of the value from the retail investors. 4. Indirectly, property is still in the developer's control! 5. Developer sets up REIT management firm and earns additional income from fees for managing (his) REIT. 6. Of course, income from lease and rent continues.

B2. Recycle Your Capital: Your unlocked funds keep on multiplying:

Now you have got your 70 % funds back. Which you can use in a new project. As soon as this project is ready you can sell it to your REIT and thus go on and on. Obviously, with every project you are going to multiply your funds and earn lots more than the lease.

C.Benefits for retail investors:

C1.From an investor’s perspective, units in a REIT are instruments for investment in addition to shares, units of mutual funds and bonds (government or private).

C2.The Satisfaction of 'Ownership of Property'

Thanks to Late Shri Dhirubhai, because of him we have an investor culture in India. Over a period, Indian investors have learned to give more value to 'the satisfaction of ownership' than to the amount of money they receive as a dividend. Every time when i am in Navi Mumbai, because of my couple of shares, i feel so proud of my companies and i wonder how much more satisfied i would have been if Anil and Mukesh would have had a couple of more brothers! But remember, you are going to give me that kind of satisfaction which i yearned for ages. Now you and your REIT is going to give the satisfaction of ownership of property, say for example a software park. Security may not let me go in, so what? Honor of owning a piece of property is great. Ask any Indian!

C3.Investor can become a millionaire by retirement!

Or he can provide for the fees of his new born baby when it gets admission to the junior college. Because REIT generally pay good dividends. Unbelievable but true. According to Mr. Dominic Whiting, Author Of ‘PLAYING THE REITS GAME’ in US REITs have paid around 13% average returns for last two decades! You have to be invested in your REIT for next 25/30 years. I am sure, considering RBIs negative opinion about funding real estate, you can make up your mind to give that much returns to your REIT's investors.

C4.How much?

Why Singapore?:

1. Since you can not set REIT in India you have to go overseas. Yes, Middle east is an option, but they say Singapore is better. 2. Singapore allows you to package your properties in India into your Singapore listed REIT. 3. Singapore offers tax exemption for corporates as well as individuals. 4. Singapore has a limit of 60% on debt gearing so you can acquire more funds than you can in Hong Kong.

REITs increase the valuation of the property:

As per Mr.Whiting, because of the tax exemptions and less expectations of the investors, REITs pay more - you get better rate for your property; transact more - increase in the numbers of transactions; so market value of the properties increases. We always enjoy price rise, isn't it?

Investment Grade Buildings:

This is a serious issue. We have very less Investment Grade Buildings. Out of 300$ Billion worth of commercial buildings only $83 Billion can be considered as Investment Grade. It means we have a lot of scope to improve the quality.

Indian real estate bubble:

"A REIT market in India could take off if the current boom turns into some kind of bust." As per Mr. Whiting, in US as well as in Japan, growth of REIT has happened only when market was low. So he expects for the sake of the growth of the REIT something should happen in our market!? Do you think current boom is only a bubble?

Indian real estate news:

“The Indian real estate is hampered by poor foreclosure laws, tedious property registration processes, tax and transaction laws that vary by the state and frequent contests over property ownership.” says Mr. Whiting. This is not a news for us. Is it?

"It is felt by some people that REITs have a heating effect on a country’s property market. However, REITs have exactly the opposite effect. If a REIT market is underpinned by appropriate legislation, REITs will have a price stabilising effect on the market." says The Chief Executive Officer of the Singapore-based Asian Public Real Estate Association (APREA — an association of listed real estate companies in the Asia Pacific), Mr Peter Mitchell.

Let us see how DLF is playing REIT game:

1.Advertising is not the only place to push your product: We all know, we can do it on editorial pages by publishing articles promoting your cause. See for example these statements:1. "The one financial product that Indian investors badly need and continue to be denied is a real-estate investment trust, or REIT." : shows your concern for Indian citizens.2. "India must decide whether we want to keep the business at home, in Mumbai or loose it to Singapore?": shows how patriotic an Indian you are.3."Indian investors are kept out of the market on the pretext that the real-estate business in India is unsuitable for the small guy." According to Oxford English Mini-Dictionary, PRETEXT n. a false reason used to justify an action.PRETEXT: 1)Title rights aren’t clear 2)Transactions are often funded with black money 3)Valuations are suspect. :Convince your fellow citizens to ignore these things. This shows how much you want them to prosper.4. "If investors in Singapore can live with the market imperfections, there’s no reason why Indian investors, who are much more aware of the risks, can’t be trusted to make intelligent decisions.": shows you value intelligence and since people working in IT are called 'knowledge workers' they like to be called 'intelligent'.5. To put all these arguments powerfully read this article more than once.

Indian real-estate billionaire Kushal Pal Singh's DLF group is raising $1 billion from investors, including Lehman Brothers Holdings Inc., and may sell shares in property trusts in the South Asian nation or overseas

In a tete-a-tete with Niren Shah, the chairman of Parsvnath Developers, Pradeep Jain, lashes out at competitors including the largest real estate player DLF for showing sudden jump in revenues and profits and claims that his company has maintained consistent growth over the past many years.But we are neither in the business of trading land, nor are we selling a finished structure leased out to somebody, to our associate company to book profits only in the books (referring to DLF). That is not operating profit or operating revenue.

So, if we say we have certain number of acres of land, we have acquired that land only after making sure that it is usable, under approved zones. We get the sale deed made, enter into an agreement and ensure an uninterrupted possession of that land with the company for urban development. We do not just draft memorandums of understanding (MOUs) without keeping ground reality in mind.

India will need to change parts of its legal and taxation framework for real estate investment trusts (REITs) to find a foothold in the country’s booming real estate market, according to a joint research paper by credit rating agencies, Moody’s Investors Service, and Icra Ltd.

Another DLF company may hit the capital market over the next one year. DLF Group subsidiary, DLF Assets, may go public next year or get converted into Real Estate Investment Trust (REIT). It is at present awaiting SEBI`s guidelines on REITs. DE Shaw, the leading US hedge fund with over USD 30 billion in assets, has recently invested USD 400 million in DLF Assets. This could mean that the management could be seen as more investor friendly than in the past and those chances of negative surprises could be few and far between.

IT is a township that is attempting to redefine the FDI acronym. It is not about foreign direct investment rather it should be read as ‘Farmers’ Direct Investment’ — making farmers stakeholders instead of getting into conflict with them over land acquisition seems to be the maxim of this model.

That is how Satish Magar, one of the chief promoters of the successful Magarpatta Township Development and Construction Company (MTDCC), wants it to be seen. The Magarpatta model, where farmers pooled their land to promote the Magarpatta City project, is being replicated again in the district.

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